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Zynga stock falls again after brief climb

The Zynga stock price roller coaster continues its ride, as the stock fell 6.42 percent today to close at $3.06. Over the last two weeks the stock had closed below $3 on more than one occasion, and last week had managed to creep up to $3.27.

The stock continues to be battered as news of more executive departures comes out. Erik Bethke, who oversaw the disappointing Mafia Wars 2, left earlier this month. Alan Patmore, general manager of the popular CityVille game, left to take up a role at Kixeye. Inside sources told Bloomberg Businessweek that Ya-Bing Chu, a vice president in Zynga's mobile division, and Jeremy Strauser, a studio general manager responsible for Zynga Elite Slots and Zynga Bingo, also have resigned this month (Strauser's Linkedin profile puts his Zynga experience in the past tense). COO John Schappert left the company earlier this month as the reorganization stripped him of oversight for game development.

Zynga's stock has declined some 68 percent since trading began in December of 2011. Reports are that CEO Mark Pincus gave new option grants to all full-time employees earlier this month, in part in an effort to stem further departures. The company's second-quarter earnings were below analyst estimates, though many analysts continue to rate the stock as a buy.

Indeed Chee, it does beg the question when they're actually going to make original games, especially when they clearly have an amazingly talented development team that's being wasted on clones. Or are they actually just quite happy to all go down with the Clonetanic?

I think the weakness in Zynga goes far deeper then their habit of cloning existing games. Imitation has always been part of the games industry and some of the most successful franchises started out as "clones" (think of all the "clones" of Quake, like Unreal... we don't call them clones anymore we simply call them a market category called FPS.)

The true weakness of Zynga is and has always been their monetization model. Just gathering lost of users does not mean you can be profitable. Users cost money to support. Unless they generate more then they cost to support they are a net loss and the more there are the bigger your loss is. At the time of the IPO, even with all the tricks they could pull like cutting back marketing and riding on year end expenditure from the year before, Zynga was averaging a dollar a year per user. Thats an awfully slim margin.

Fact of the matter is nobody makes any money by giving anything away. And if the give-away is just a con, you better make sure the pay-off from the con costs more then the setup.

Although its tempting to say you reap what you sow, there will still be a lot of people at the studio who will have worked hard on the projects and titles shipped, even if ultimately cloning was the business model set by the leadership. I'm interested to see whats happens this year.

Downsides. Facebook is a burning platform for gaming and Zynga didn't move to mobile fast enough or with enough commitment. They got left behind.
Also Zynga are having monetisation problems with their non micromanagement games.

Upsides. They have a huge amount of money in the bank. Cash per share is almost share price!
Having lost a few good people they still have very many more.
Zynga are still way ahead of the pack in key gaming technology areas such as metrics and behaviour.
They have an immense active customer base waiting to be more effectively monetised.
When and if real online gambling is legalised in America you can add a couple of zeros to the Zynga stock price.